Stressful Times For Europe's Leaders

Forbes

24-07-2025

STRASBOURG, FRANCE - JULY 18: Ursula von der Leyen reacts after being reelected as head of the ... More European Commission during the plenary session of the European Parliament on July 18, 2024 in Strasbourg, France. Members of the European Parliament had to decide today on a second term for Ursula von der Leyen as the head of the European Commission, a role she has held since December 1, 2019. She secured the backing of 401 MEPs in the 720-seat European Parliament. Additionally, the leadership positions for the European Parliament, European Council, and the EU's foreign affairs are also being decided. On Tuesday, the newly-elected EU Parliament began its first legislative term in France following the recent elections. (Photo by)
Two events this Thursday will define the performance and vision of Europe's leadership. First, today Ursula von der Leyen and colleagues are in Beijing this week (24th – a second day in Hefei was cancelled) for a somewhat downgraded summit with China, ostensibly to mark the 50-year anniversary of diplomatic relations. Key personnel like trade commissioner Sefcovic will not attend, and expectations for any positive developments have been tempered. Europe is highly uncomfortable with China's support of Russia's military, its 'dumping' of excess industrial capacity in Europe (e.g chemicals) and the many barriers to entry it erects to overseas firms (opaque regulations and forced technology transfer).
Policy documents being prepared by the EU External Relations directorate talk more of an engagement with China than a partnership, and worlds like 'rivalry' are increasingly deployed. More tellingly, the language in the new EU budget speaks of 'high-risk suppliers' (code for China) and the need to insulate supply chains against them.
For its part, China's overtures in Europe have been unfortunate – cultivating extradition deals with 'black sheep' like Hungary, and failing to engage on key policy issues (i.e. electric vehicles) and of course its relationship with Russia. The outcome of the meeting and the geopolitical changes behind it may well be that China decides that Europe is no longer a priority in terms of engagement and turns its attention to other parts of Asia and Africa. Europe is already casting China in a more negative light.
In general, European military leaders and industry chiefs are thought to be aligned with the EU's tougher stance on China, and in the absence of concessions from China, we expect that relations will continue to be 'correct', and somewhat frosty. A joint statement on climate has been agreed, apparently, but this might be the only take-away.
Also on Thursday, having steadfastly cut rates over the course of the past year, the ECB, in our view will increasingly watch and wait, amidst signs that credit growth in the euro-zone is beginning to pick up. In addition, we expect that the chief pre-occupation of the Governing Council will be the strong euro, and we expect that policy members will increasingly try to chip away at the strength of the euro in their public addresses. With positioning data showing thedollar is now tactically oversold, the luck of the ECB might be in but it will require some dovish forward guidance.
The actions of the ECB, in contrast to the Fed which faces stiffer inflation pressures, have helped to support the euro-zone economy. With tariffs biting many European firms, the next challenge is to see how they can curb euro-strength.